Fed's low-interest-rate policies cost savers $758 billion, study says

Jim PuzzangheraThis post has been corrected. See the note below for details.

The Federal Reserve's low interest rate policies, designed to stimulate the economy, have cost savers about $758 billion since the end of the Great Recession, according to a study released Tuesday.

Inflation and low returns on deposits have led bank customers to lose more than $100 billion in purchasing power in each of the last five years, said MoneyRates.com, which provides consumers with information about bank rates, investing and personal finance.

The Fed's benchmark short-term rate has been near zero since late 2008 as central bank policymakers tried to battle the financial crisis and Great Recession. The goal was to make money cheap so that consumers and companies would spend rather than save, stimulating economic growth.

The Fed's policies helped push mortgage rates to historic lows and made other types of loans cheaper, saving consumers money in some ways, said Richard Barrington, a senior financial analyst for the company.

Fed officials have pointed to those savings, as well as the broader benefits of an improving economy, in justifying the low interest rates.

Central bank policymakers are reducing another stimulus program, its monthly bond-buying effort, and have indicated they could start raising interest rates slowly next year if the economy continues to improve.

But Fed Chairwoman Janet L. Yellen has emphasized that rates probably would remain very low for some time because of still sluggish economic conditions.

So far, the low rates have shifted money from savers to borrowers and have provided an ongoing "stealth bailout" to banks, Barrington said.

“Low-interest-rate policies have helped bail out banks, the stock market and real estate, but the Fed has not publicly acknowledged the cost of those policies," Barrington said.

"Our estimate of the hidden losses due to low interest rates is an attempt to shine a light on that cost,” he said.

The study said that average money market rates have ranged from 0.08% to 0.1% over the last year, well below the 1.5% inflation rate.

By adjusting the $9.43 trillion in U.S. bank deposits up for interest earnings and then down for inflation, the study calculated that savers lost $122.5 billion during that time. Added to losses over the prior four years, the Fed's low-interest-rate policies have cost savers $757.9 billion, the study said.

Still, Gallup poll results released Monday found that Americans, by a 62%-to-34% margin, prefer saving money to spending it. The so-called saving-spending gap is much greater than it was before the Great Recession as Americans have tried to reduce their debt.

[For The Record, 9:55 a.m. PDT April 22: An earlier version of this post stated that savers had lost $758 million because of the Fed's low-interest-rate policies and more than $100 million in each of the last five years. The losses are $758 billion and more than $100 billion in each of the last five years.]